Introduction

How much physicians are paid, and what they are paid for, influences the amount and type of care they provide. Payments also have an effect on patient load. Generally, physicians have a “target income” which they aspire to reach. They will therefore adjust their services to reach this goal. As indicated in the most recent MedPAC Report to Congress:

Overvalued services may be overprovided, because they are more profitable than other services. Under-valued services may prompt providers to increase volume to maintain their overall level of payment. Conversely, some providers may not furnish services that are undervalued, which can threaten beneficiaries’ access to care.[1]

An even more egregious impact occurs when it is entire segments of the population that are undervalued. When doctors earn different payments depending on whom they serve, they will tend to favor higher-paying patients, who will yield a higher fee for a given procedure. Moreover, physicians may decide to place a cap on the number of patients for whom they are paid less, thereby limiting access for these.

Unfortunately, payment differentials are embedded in policy, with different fees being paid for the same service under two publicly-financed programs: Medicaid and Medicare. Moreover, Medicaid fees vary greatly from one state to another, with differences that cannot be explained on the basis of need, cost of living, practice expenses, or any other factor.

Medicare fees are based on a relative value schedule and are established nationally, although they vary somewhat from one state to another. Fees incorporate a geographic adjustment factor (GAF) which seeks to equalize the variations in the costs of medical practice in different areas of the country. This therefore has a leveling effect in payment across states. The GAF takes into account geographic differences in three components known as Geographic Practice Cost Indexes (GPCIs or “gypsies” for short): physician’s work, practice expenses, and malpractice insurance. At present, these factors have significantly reduced geographic differences in Medicare payments: while the difference in payment between the top and bottom-paying states was many-fold before the adoption of a geographically-adjusted relative value scale, the difference between what the lowest-paying state and the highest-paying state paid for a given procedure was not more than 25-30 percent in 2002.[2]

In contrast, Medicaid fees are established by each state. For the nation as a whole, Medicaid fees are lower than Medicare fees; the data for 2003 indicate that, overall, Medicaid paid $.69 for every $1.00 paid by Medicare for the same set of services. But the Medicaid-to-Medicare ratio varies greatly from one state to another, with two states paying more under Medicaid, a few paying at or near parity with Medicare, but most paying their Medicaid providers significantly less than they earn under Medicare.[3]

There are also marked differences in the fees that different state Medicaid programs pay for the same procedures. As a result, some providers are not finding it financially viable to serve Medicaid patients.[4]

Purpose

In order to ascertain what Medicaid and Medicare providers earn for specific primary care-related services in given states, we computed the current (2007) Medicare fees for 10 states and the District of Columbia, and compared them with the corresponding fees under Medicaid. We also examined inter-state differences within Medicaid programs in the same 10 states and DC, using their current fee schedules. The choice of primary care was based on the following:

Primary care constitutes the entry point into the health system, and therefore affects access to other services.

Primary care services comprise the bulk of all personal health care. In 2005, the most recent year for which data are available, one half of ambulatory medical care visits were to primary care physicians in office-based practices.[5]

Unlike other types of services (e.g., ob-gyn), primary care is broadly-based and not exclusive to one or more gender or age-specific demographic groups.

A prior study carried out by the Urban Institute found that this is the area of services which is most underfunded, and where the payment disparities are the greatest. The Urban Institute study, which was based on 2003 data, found that the Medicaid-to-Medicare Fee Index was .62 for primary care nationwide.[6]

Methods

The selection of states we focused on was based on the prior (2004) study; we looked at the states with the greatest fee parity and those with the most significant disparities in their payments for primary care. In order to obtain the current (2007) Medicare payments, we computed the current fees for a basket of primary care services comprised of 11 procedures. These are the same procedures included in the prior study, although the data are not comparable because the 2004 study weighted the individual fees to reflect the relative importance of each service and each state.[7]

Using the 2007 GPCIs and the relative value units for each component of the fee from the Medicare RBRVS: The Physicians’ Guide, the fees for the chosen procedures were computed for each state. The following formula was used to calculate each procedure- and state-specific Medicare payment:

Three states – New York, Pennsylvania, New Jersey – had more than one Medicare payment area. In those cases, the formula was applied to each area and the mean or average for each procedure was computed for the state as a whole. This yielded fees for the 11 primary care procedures under study. The sum of the procedures was the fee for the total primary care package.

The Medicaid data for each corresponding procedure were obtained from each state’s Medicaid fee schedule. The fees for the 11 procedures were then added, and the totals for Medicaid and Medicare were then compared. This yielded the Medicaid-to-Medicare ratio for primary care services.

We also looked at the variation in Medicaid payments among states, focusing on the selected group of primary care services and how these are reimbursed in low-parity states in comparison with those that have high parity. Because the latter include two states that are statistical outliers, we omitted those states and computed the average Medicaid payments for the remaining four higher-paying states (HPS). It was these average payments that were compared to the state-specific fees for the low-paying states.

Part A: Current Medicaid-to-Medicare Ratios in 11 States

Tables 1 and 2 below present some of the current Medicaid-to-Medicare ratios for a group of primary care services. The states that ranked at the top among the high-parity states in 2003 now have the following Medicare-to-Medicaid ratios:

The states that were above or at parity in 2003 retain that distinction. At present, Wyoming and Alaska emerge as statistical outliers, paying their Medicaid primary care providers significantly more than Medicare practitioners receive. That can be explained by their relatively sparse populations, and their need to recruit and retain practitioners.[9] Delaware and Arizona continue as the states that pay their Medicaid primary care providers most equitably compared to their Medicare counterparts, followed by North Carolina and Arkansas. Delaware has in effect adopted the Medicare fee schedule for its Medicaid program, thereby paying providers the same regardless of the population served.[10] The procedure-specific Medicaid fees for these four states – Arkansas, Arizona, Delaware and North Carolina – were averaged in order to compare them with the fees corresponding to the low-paying states.

The states that had the lowest ratios and therefore had the highest disparities in Medicaid and Medicare payments in 2003 now have the following Medicaid-to-Medicare ratios:

New York and New Jersey clearly emerge as the states with the worse (i.e., more disparate) primary care Medicaid-to-Medicare ratios in the nation.

Part B: Actual Reimbursement Differences among States for Medicaid, and within States for Medicaid and Medicare

We also looked at what the state Medicaid programs in these same 11 states and the District of Columbia pay for four reimbursement items, in order to compare the high-parity states with the low-parity states. In each case, the states with the lowest parity are compared with the average fee for four of the high-parity states (omitting Alaska and Wyoming, which represent extreme values and would have distorted the comparison). The results of this are summarized in Table 3, with the differences in service-specific fees, including comparisons with Medicare, presented in Tables 4-7.

Geographical adjustments and the adoption of a relative value fee schedule have made Medicare payments more equal over time. At the same time, Medicaid payments have been left to state initiatives and have lagged behind, sometimes severely so. As a result, those states with the highest disparities also have the lowest Medicaid fees overall. As indicated in Table 3, these states lag considerably in what they pay for primary procedures vis-à-vis the high-paying states (HPS).

The variation is not only evident from one state to another, but also within states, when Medicaid fees are compared to Medicare payments for the same service.

New York

Medicaid physicians in New York get paid $30.00 for a 15-minute office visit with an established patient while their counterparts in the higher-paying states earn $49.20 (more than 1.6 times more) for the same service; and when the visit is a consultation with a new or established patient and lasts 60 minutes, New York doctors earn a paltry $20.00 while their colleagues in the HPS earn $157.92, a more than sevenfold difference (CPT Code 99213, Table 4; and CPT 99244, Table 5). Within-state differences also emerge when Medicaid fees are compared to Medicare. In New York, physicians earn more than twice the fee for seeing an established patient for 15 minutes (CPT Code 99213, Table 4) under Medicare as they do under Medicaid ($65.27 vs. $30.00). For ophthalmologic services (CPT Code 92002, Table 7), the difference is 2.5 fold in favor of Medicare. In New York, even a standard EKG (CPT Code 93000, Table 6), which is most often performed by a technician under the supervision of a physician, earns a fee of $15.00 under Medicaid; this represents three-fifths of the fee in the HPS, which is $25.51. The within-state Medicaid-to-Medicare difference is also noticeable: physicians receive $28.09 under Medicare for the same procedure.

New Jersey

Similarly, New Jersey physicians under Medicaid earn less than half as much as their counterparts in the higher-paying states for some services. A 15-minute visit with an established patient (CPT Code 99213, Table 4), or a 60-minute consultation with a new or established patient (CPT Code 99244, Table 5), earns a doctor only 42 percent ($20.60 vs. $49.20) and 49 percent ($77.90 vs. 157.92), respectively, what she would get paid in the HPS. And if the same doctor were treating a Medicare patient, her fee would be 3.2 times higher for the 15-minute visit ($65.65 vs. $20.60) and 2.5 times higher ($196.67 vs. $77.90) for the consultation.

Pennsylvania

Doctors in Pennsylvania earn a miserly 31 cents for every dollar paid to their colleagues in the high-paying states ($49.00 vs. $157.92) for an hour-long consultation with a new or established patient (Code 99244, Table 5). And, again, the intra-state differences are significant when Medicaid and Medicare fees are compared. In Pennsylvania, the corresponding fee for the same service is 3.7 times higher under Medicare than under Medicaid ($181.29 vs. $49.00). Additionally, an ophthalmologic visit with a new patient (CPT Code 92002, Table 7) is reimbursed at $17.00 by Medicaid, while the fee is $67.94 under Medicare, a fourfold difference.

Rhode Island

Rhode Island physicians, like their Pennsylvania colleagues, earn only 31 cents for every dollar paid to their counterparts in the HPS for a 60-minute consultation with a new or established patient ($49.00 vs. $157.92; CPT Code 99244, Table 5). And when the fee for the same service is compared to what a physician earns under Medicare ($49.00 vs. $183.00), the difference is 3.7-fold. Even a straight-forward EKG earns a fee 1.5 times higher under Medicare than under Medicaid ($24.61 vs. $16.31; CPT Code 93000, Table 6).

District of Columbia

In the District of Columbia, the disparities are also considerable. A 60-minute consultation for a new or established patient (CPT Code 99244, Table 5) earns $86.98, which is only 55 percent of what the HPS pay for the same procedure ($157.92). And because this same service earns $201.81 under Medicare, the difference in Medicare-to-Medicaid fees is 2.3-fold.

Geography may not be destiny; but, in the Medicaid program, it can affect providers’ incomes. It is therefore not surprising that the existing disparities have dissuaded many doctors from accepting Medicaid patients, and that Medicaid payments and their erosion over time has been a recurring source of friction between Medicaid practitioners and the state.

Clearly, practitioners in states such as New York, New Jersey, Rhode Island, Pennsylvania, and the District of Columbia are at a disadvantage compared to their counterparts in states such as Delaware and North Carolina. And, because these five disadvantaged jurisdictions include three populous states – New York, Pennsylvania, and New Jersey – and account for more than 13.5 percent of all Medicaid beneficiaries,[11] their failure to provide adequate payment affects a not insignificant fraction of total physicians and enrollees. Moreover, because Medicaid fees have an effect on the capitated payments paid to managed care organizations under Medicaid, the depressed fee-for-service payments have a spillover effect on all Medicaid providers regardless of their reimbursement modality.[12]

*This represents the average for the four Higher-Paying States: Arizona, Arkansas, Delaware, and North Carolina.

Tables 4-7, which focus on the differences in fees by procedure, indicate the gaps in payment between Medicaid and Medicare within the same state. While the high-paying states have achieved near-parity with Medicare fees for the procedures under study (the Medicare-to-Medicaid ratios range from .91 to 1.2), providers in the five low-paying states earn significantly more for a given service under Medicare than they do under Medicaid. The fact that practitioners providing the same service to two patients – one a Medicare beneficiary, the other a Medicaid patient – can earn from 2 to 9 times more for the former, means that that practitioners have an economic incentive to privilege one set of patients over the other, even when they have pledged to treat everyone equitably.

In general, the more time-consuming procedures show the greatest fee disparities. Thus, a one-hour consultation with a new or established patient (Table 5, CPT Code 99244) is the most under-valued procedure in the five states, the Medicare payment being several-fold the Medicare fee. As indicated above, the difference is particularly dramatic in some states, such as New York. The differences decrease somewhat when the patient-physician encounter is shorter, but they still range from two- to three-fold for an office visit with an established patient lasting 15 minutes (Table 4, CPT Code 99213).

Differences in the fees paid by each of the two programs are less salient for procedures that are short and technology-dependent. Thus the payments for an electrocardiogram (EKG, Table 6, CPT Code 93000) are less disparate. Still, they can vary by a factor of 1.9 in New York. Similarly, Medicaid providers in New Jersey and the District of Columbia earn 57 and 55 percent, respectively, what their Medicare counterparts earn for the same service.

Price discrimination has therefore not only been allowed, but actually been enshrined in the fee schedules that govern our two major health programs. That this is occurring under public auspices is unconscionable in a country in which many polls show that the vast majority of the population feels that everyone should have equal access to health care and that medical need rather than economic status should determine eligibility for health care.

Implications

As long as Medicaid fee schedules short-change providers, the program and its clientele will be considered less worthy and access to care will be restricted for the poorest, neediest Americans. Fee differences between Medicare and Medicaid consign Medicaid to second-class status, and its beneficiaries to lower-tier care. Beyond the issue of disparate payments is the fact that many states pay too little; as a result, they have difficulty getting doctors to take Medicaid patients. This results in limited access to mainstream medical care for many.

The disparities among state Medicaid programs are equally worrisome. The existing differences are largely arbitrary, unrelated to population needs, physicians’ competence, practice expenses, cost of living or any other reasonable explanatory factor. How then to account for the fact that an emergency department visit earns a fee three times as high in Delaware as it does in New York? And that a visit to an ophthalmologist in Pennsylvania is reimbursed at a rate that is less than one-third that paid to a practitioner in North Carolina? The fact is that what physicians are paid under Medicaid is the result of the accumulation of many decisions that are only tangentially related to equity for practitioners and greater access to patients.

Concerns related to low payments and fee disparities are not new. As economist Rashi Fein has indicated, the differences, while shocking, “existed from the first days” of the programs.[13] In 1991 a Federal advisory commission recommended that payments to doctors under Medicaid should be gradually increased to the amounts paid under Medicare.[14] The major rationale for this was that this would provide incentives for more physicians to care for poor people. A second reason given was that this would rationalize the payment of doctors under Medicaid by adopting a schedule that is calibrated to reflect the amount of work, overhead costs, and malpractice insurance costs associated with each service.[15]

Although in 1991 the chair of the Ways and Means Subcommittee on Health introduced a bill that would require states to raise their Medicaid payment schedules to Medicare levels, this was never enacted. At the time, the cost of bringing the two programs to parity was estimated at $2.4 billion a year.[16] It would be considerably more now, not only because of inflation but also because the programs currently provide a broader scope of services to more persons. In addition, services now are more technology-dependent; while in some cases technology may result in savings, more often than not it adds to the price of services. Moreover, the population has aged, thereby increasing the number and proportion of those most likely to consume more services. Furthermore, the gap in fees between the two programs has widened over time.

In FY1991 Medicaid expenditures totaled $72 billion; by FY2005, this figure had reached more than $304 billion. Even a simple, linear extrapolation of the trend in Medicaid spending over the past 16 years means that achieving parity in payment would cost at least $10 billion per year. A fiscal impossibility? Not really. At present, the Pentagon is spending $6 billion per month waging war in Iraq. Reallocating a mere two months of the war budget would suffice to give Medicaid physicians parity with their Medicare counterparts for a full year. Fiscal impossibilities have a way of receding in the face of moral imperatives. It’s all a matter of recommitting to health what we now so routinely commit to death.

[8] This constant adjuster was adopted to set the 2007 fees; it applies only to the work expense component of the fee. (By law, if changes to the work relative values resulting from a five-year review causes total fee schedule payments to change by more than $20 million, a budget neutrality requirement applies.). MedPAC, Medicare Payment Policy, March 2006: 137-138.

[9] For example, Alaska’s Medicaid fees are 250 percent higher than the national average in the area of primary care.

[10] The fees were the same under the two programs for the 11 procedures we examined.

[11] Data based on data in US Census Bureau, Statistical Abstract of the United States: 2006. US Department of Commerce, 2005, Table 137. Medicaid – Summary by State, 2000 and 2002.

[12] Many states peg their Medicaid capitation rates to what they pay in the fee-for-service part of the program. Stephen Zuckerman et al. Changes in Medicaid Physician Fees, 1998-2003, op. cit: W4-374.

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